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Mobile TeleSystems PJSC (NYSE:MBT)
Q3 2020 Earnings Call
Nov 17, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Dear ladies and gentlemen, welcome to the Conference Call of Mobile Telesystems. [Operator Instructions]

May I now hand you over to Polina Ugryumova, Director of Investor Relations, who will lead you through this conference. Please go ahead.

Polina Ugryumova -- Director of Investor Relations

Welcome everybody to today's event to discuss MTS third quarter 2020 financial and operating results. Before we start, I must remind you that except for historical information, any comments made during this call may constitute forward-looking statements. Important factors including related to the COVID-19 pandemic could cause our actual results to differ materially from those contained in our projections or forward-looking statements. This in turn imply certain risks and more thorough discussion of which are available in our Annual Report and Form 20-F or the materials we have distributed today.

MTS disavows any obligation to update any previously made forward-looking statements spoken on this conference call or make any adjustments to previously made statements to reflect changes in risks. As always, you can find our press release and presentation for this call on our IR website.

Today's presenters are, Alexey Kornya, President and CEO; Slava Nikolaev, First Vice President for Customer Experience, Marketing and Ecosystem Development; Inessa Galaktionova, First Vice President for Telecommunications; Andrey Kamensky, First [Phonetic] President for Finance; and Ilya Filatov, Vice President for Financial Services and CEO of MTS Bank, who will speak in Russian and I will translate.

Now it's my pleasure to introduce Alexey to kick us off.

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

Thank you. Welcome everyone and thank you for joining us. I will begin with the headlines and the highlights before handing it over to Slava and Inessa for ecosystem and telecom updates. Ilya will then give some color on MTS Bank and Andrey will go over group financial results. Then we'll wrap up for questions.

I'm very excited to be able to report that MTS has once again delivered another set of solid results for third quarter 2020. For the quarter, group revenue grew 4.9% year-over-year to reach RUB129 billion. We delivered balanced growth in both telecom services as well as new segments beyond connectivity, with all four of our verticals contributing. Moreover, Fintech, Media and Cloud & Digital solutions combined pace [Phonetic] connectivity to deliver more than half of the total upside.

Group adjusted OIBDA, will likewise up a solid 3.3% year-over-year to reach over RUB58 billion. The increase was primarily driven by service revenue, opex savings in retail as well as a positive contribution from banking services. Overall, I am encouraged by our robust year-to-date performance, especially given the volatility and challenges amid the COVID-19 pandemic.

Encouragingly in third quarter, with so many of the headwinds begin to ease, our stores in Russia mostly resumed normal operations and MTS Bank returned to profitability with relatively more stable market environment. At the same time, challenges remain, most notably, the decline in international roaming, but also the overall higher level of economic uncertainty, which could put additional pressure on our segments, most exposed to the macro cycle in particular B2B and financial services.

We also continue to make progress on our transformation plan. Let me give you a few of the recent highlights. In artificial intelligence, we announced the new position for Vice President for Artificial Intelligence and we are happy to have a proven leader in the sector Alexander Khanin, joining MTS to take the role.

In cloud, we recently launched a major new tier 3 modular data center outside St. Petersburg, and we have strengthened partnership on next generation technologies such as teaming up with Canonical to deploy Charmed OpenStack.

In 5G, we continued to engage with key stakeholders on defining the path forward in Russia and we are partnering in pilot projects to strengthening our position ahead of the future commercial rollout. Overall, we continue to execute a pace on the CLV 2.0 strategy that we have laid out for you a year ago. As you recall, there are two fundamental pillars. First, be the best telecom in Russia and second, capture digital upside. Today, we are more confident than ever that we have a strong foothold to catch some of the digital wave.

With that, I will hand it over to Slava, who will give customer experience and ecosystem update.

Vyacheslav Nikolaev -- First Vice President for Customer Experience, Marketing, and Ecosystem Development

Thanks, Alexey, and good afternoon and good morning to everyone joining us. 2020 has been an unprecedented year for digital uptake both globally as well as for MTS. Overall, we're making good progress against many of the KPIs we track closely.

Let me share a few. First and foremost, we've now reached more than 6 million multi-product users. These are customers who are consuming more than one service across Telecom, Media and Fintech. For reference, that's a bit under 10% of the size of our overall mobile subscriber base. And going forward, we see significant potential to increase that penetration further.

In Q3, we also saw surging adoption of our loyalty program MTS Cashback with registered users more than doubling year-over-year to 8.4 million. And we continue to gain traction with our MyMTS app, with monthly active users up around 20% year-over-year. Digitizing customer care not only helps boost cost efficiency, but it also provides a highly effective channel for targeted marketing.

In the high-value segment, we are off to a good start with our MTS premium ecosystem bundle, which we launched over this summer. Today we have over 4 million users, keeping in mind that includes those who automatically qualified by passing expanding threshold. And we are seeing robust uptake, engagement has already reached around 20% of total users by the second month after launch.

Turning to MTS TV, we are seeing very robust net adds. In Q3, we gained additional impulse on top of the already solid momentum from Q2. Viewership was up by 700,000, a 15% quarter-over-quarter increase. And breaking that down further, it's even more impressive. In OTT alone we saw exceptional 50% growth in users quarter-over-quarter. So we are moving at full force to capture some of the in-home entertainment market.

At MTS Bank, our customer base remained stable despite economic volatility. We've also recently taken some steps to revamp our mobile banking app to provide a more full featured and user-friendly experience. At the end of Q3, we had nearly 1.1 million app users. We are also pivoting our marketing approach, allocating over half of our spend toward bundle and ecosystem offers and we see encouraging signs, we are successfully winning mindshare. According to our consumer brand tracking, we are perceived as a top three ecosystem player among leading Russian pack and financial companies. We think that's a very promising leading indicator.

Finally, we are also making progress on revamping our app library, which we develop largely in-house. We are adding modular login and payment models to more than 10 of our apps. This significantly enhances the user experience by providing a fully consistent interface across our app portfolio.

With that, let me hand it over to Inessa for telecom and B2B update.

Inessa Galaktionova -- First Vice President for Telecommunications

Thank you, Slava. And Q3 was another strong quarter for MTS and core connectivity. Let me start with mobile. Wireless service revenue accelerated from Q2 to reach a solid 3% growth year-over-year. Notably, we successfully bridge the gap that resulted from the loss of international roaming, usage to pandemic related travel restrictions. That particularly impressive given roaming seasonality and we believe reflects the strong underlying performance of the business.

Looking ahead, Q4 is historically a light quarter for travel, so we expect to see roaming headwinds easing through [Phonetic] the end of the year. Furthermore, the anticipated upcoming vaccine rollout gives us some cautious optimism that roaming may begin to recover in the new year.

Turning to the mobile customer base. In Q3, three months subscribers in Russia rebounded to 78.2 million, as a result, iterations fully resumed. That's a bit below the pre-COVID level, which in part reflects the ongoing impact on immigrants, tourists and digital. Most importantly, we continue to see cost dynamics in our high volume base. These are all subscribers who have been with us for 12 months or longer. We also continue to define our tariff structure in line with evolving market conditions, for example, we are encouraging customers to migrate from their unlimited plans by offering new tariffs with generous data caps at an attractive price point. So overall, we feel good about our mobile revenue and subscriber performance in Q3.

Turning to fixed line. In Q3, we enjoyed robust dynamics and we closed the quarter with revenue up 1.7% year-over-year. Excluding telephony, which is in secular decline, fixed line revenue was up a solid 5.4% year-over-year. And currently, we carved out Q2 momentum toward in consumer broadband, reflect at holding steadily at around 100,000 quarter-on-quarter. We expect some connectivity growth to continue and we see this as a powerful tool and its amazing customer relations relationship.

On retail side, foot traffic to return to healthy level in Q3, following the declines that we saw in Q2. That support itself of devices and accessories, which were up nearly 3% year-over-year. That said and certainly remains as the epidemiological situation continues to evolve, which would impact consumer spending during the holiday season.

And recall [Phonetic] we saw exceptional performance with online sales up more than 75% year-over-year. And we recently reached a major milestone by becoming the first Russian operator to launch eSIM nationwide with a fully remote authorization and activation process.

Finally, turning briefly to the B2B segment. 2020 has been the year of digital acceleration and in Q3, we continue to see robust demand for next generation services. Order of revenue in our cloud and digital solutions vertical was up 24% year-over-year. Our cloud business alone saw more than 80% revenue growth with fully double digit performance in our growth [Phonetic] as well.

Finally, and B2G revenue was up an impressive 22% year-over-year, that was largely driven by major contracts to bring social facilities online. Those projects not only make good business sense, they affirm our commitment to bridge the digital device and help improve access to fairly quality connectivity.

With that, let me hand it to Ilya for banking and Fintech update.

Ilya Filatov -- Vice President for Financial Services

[Foreign Speech] Thank you, Inessa. The third quarter proved to be a period of recovery in Fintech following the negative impact from the pandemic despite the ongoing market uncertainty. As we previously discussed, the Russian banking industry faced a steep decline in demand for credit products at the beginning of Q2. However, in early May, the industry saw early signs of demand recovery and by July it returned to pre-crisis levels. Consumer loan issuance by MTS Bank had fully recovered by the end of Q2.

[Foreign Speech] Over the past year, the bank's asset grew 14.6% to reach RUB203 billion with the total gross loan portfolio up 26% and the gross retail loan portfolio, in particular, up 34.4% to RUB107 billion. During the pandemic, loan portfolio growth slowed in Q2, the gross retail loan portfolio of MTS Bank increased 1.2%, while in the third quarter with the growth accelerate to 8%.

[Foreign Speech] Net interest income in the first nine months of 2020 increased 57.4% to RUB11.3 billion, reflecting loan portfolio growth. Overall net income for the nine-month period amounted to RUB251 million versus a net loss for the first half of the year of RUB924 million due to substantial loan provisions.

[Foreign Speech] Cost of risk for the overall loan portfolio came in at 4.6% significantly below the 11% in Q2. The decline in cost of risk reflects the high base from loan loss provisions booked during the second quarter as well as the normalization of the macroeconomic environment in Q3. The share of non-performing loans in the retail portfolio was 10.9% versus 8.1% in the second quarter. However, the Bank continues to maintain a conservative approach to provisioning with NPL coverage standing at 124%.

[Foreign Speech] In terms of capitalization, we remained at a comfortable level. Our M1.0 consolidated regulatory capital adequacy ratio was 15.5% as of October 1st which provides a moderate cushion in capital reserves versus the minimum regulatory requirements of 10.5% including buffer.

[Foreign Speech] We are consistently executing on our strategy with a focus on developing digital channels and adhering to a conservative risk management policy. As a result, we are confident the bank will record positive net profit for the full year, while achieving operational and financial growth.

[Foreign Speech] Now let me give the floor to Andrey for a financial update.

Andrey Kamensky -- Vice President for Finance

Ilya, thank you. Overall in the third quarter, group adjusted OIBDA increased 3.3% year-over-year to reach over RUB58 billion. Growth was achieved despite the steep decline in international roaming revenue, which is margin accretive for us. OIBDA was supported by higher telecom service revenue as well as opex savings from our retail optimization actions. On that note, we also want to remind investors that we saw a strong contribution to our OIBDA from retail at the end of last year. So looking ahead, we expect this factor to moderate in the fourth quarter of this year on tougher comps.

Group net profit increased 2.3% year-over-year to RUB18.8 billion. Net profit growth was constrained by the non-comparable base from discontinued operations in Ukraine. At the same time, this was more than offset by positive impact from core business performance as well as lower finance costs.

Now a few words on capex. We continue to invest heavily in our network as well as in new digital growth areas. In the first nine months of the year, group cash capex amounted to RUB63.7 billion year-to-date equivalent to a ratio of 17.4% of sales. In addition, the recent FX trends have driven our capex spending higher in ruble terms since a large portion is allocated toward radio equipment price and foreign currency. As you recall, we have a long-standing practice to proactively manage FX exposure through derivative instruments. Given the ruble dynamics this year, we have seen a net positive cash contribution from the expiration of derivative contractions for this purpose. When adjusting for this positive effect, our full year 2020 capex guidance remains unchanged at around RUB90 billion.

Turning to free cash flow. Recently, we have received some feedback about how we report this metric. In particular, given the increasing importance of Interbank [Phonetic], in banking sector, free cash flow was not widely recognized as a particularly meaningful indicator. Moreover, MTS Bank funding and lending operations have produced substantial fluctuations in group free cash flow over certain reporting periods. Internally, we have always tracked core cash flow also as a key reference in recommending our regular dividend payout.

Therefore, in the interest of transparency, going forward, we will be reporting free cash flow from excluding flow, excluding the bank. On this basis, group free cash flow ex-bank amounted to RUB54.2 billion in the first nine months of this year. This was down RUB5.3 billion year-over-year when also excluding the SEC/DOJ payment in the first quarter of the previous year. We believe this represent robust cash generation, given the non-comparable base from 2019, which included contribution from our former operations in Ukraine. Free cash flow in nine months 2020 was supported by a relatively stronger core performance in continuing operations as well as lower financing and tax payments versus the year ago period.

Finally, turning to the balance sheet. Over the past few years, we have established a solid track record in delivering material gains by bringing our borrowing cost down. In the third quarter, our gross debt weighted average interest rate dropped to 6.6%, a decrease of nearly 120 basis points year-over-year and we continue to take actions to optimize our debt portfolio.

To conclude, our strategic stance in financial management is simple, a strong balance sheet, methodical capital allocation and robust cash flow. Now, let me hand it back to Alexey for his closing remarks.

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

Thank you, Andrey. Overall, we are managing well across both core telecom as well as our three verticals beyond connectivity. In 2020, we have not only risen to the equation operationally, we have accelerated our digital transformation strategically and we are seeing that reflected in our results. In light of our year-to-date resilience, solid financial performance and increased visibility toward the year-end 2020, we are upgrading our full year guidance to revenue growth of at least 3% from flat to 3% and flat to 2% growth in adjusted OIBDA from minus 2% to flat. While maintaining our cash capex guidance of around RUB90 billion when including the effects from derivative consumers.

Turning to shareholder remuneration, we have now completed our regular dividend payouts for the year. We slightly outperformed our policy target and delivered total of RUB29.5 per ordinary share. We are also on track to complete our 2020 buyback program at around RUB15 billion. Although, this year we are returning over RUB100 billion to shareholders, setting a new record for MTS. Finally, as one of Russia's leading public companies, we are committed to close engagement with the investor community. That's why we are particularly proud to have been named the Best Executive team in our sector across the broader EMEA region in the 2020 institutional investor survey. In addition, Andrey, Polina and I were also recognized number 1 in our individual categories. We appreciate your support and we'll look forward to continuing the conversation in 2021 and beyond.

So to sum up, we have navigated through challenges. We are moving forward on our growth strategy, we delivered in third quarter and we are well positioned to deliver a solid close to the year. So with that, let me hand it back to Polina for Q&A.

Polina Ugryumova -- Director of Investor Relations

Thank you, Alexey and thank you to the rest of the speakers. As we take questions, please be aware, they may be a slight delay for translation. Operator, with that let's open up the line for questions.

Questions and Answers:

Operator

So, we will now begin our question-and-answer session. [Operator Instructions] The first question is from Ondrej Cabejsek of UBS. Your line is now open.

Ondrej Cabejsek -- UBS -- Analyst

Hi, everyone. Thank you and congratulations on the results. I have a couple of obvious questions before I get back in the queue. So I was wondering in terms of the mobile service revenues, you've highlighted that most of the headwinds that you faced so far are sort of going away now, so I was wondering more about the competitive situation on your plans to increase prices as we've come to expect in the first quarter, one of your competitors who has reported so far was highlighting sort of mixed message in terms of currently there being more competition in the market but at the same time, being a rational expectation that the market as a whole again goes through another round of repricing in the first quarter. So your views on that please? My first question.

Second question in terms of the store count, so you clearly are still managing the overall numbers. Are you ready at this stage with stores actually opening up, but you closing them further to give more sort of color as to what you expect in terms of closures for the near term?

And related to that third question please, in terms of EBITDA [Phonetic] guidance. So you -- if I just look at the swing in your EBITDA guidance today versus what we've seen so far, it's sort of implies more than what you expect on the top line in terms of guidance changed. I was just wondering where the assumption of improved profitability versus what you've seen so far is precisely coming from? Thank you.

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

Ondrej, thank you. I'll take the first and Inessa will answer the second. As far as competitive, overall competitive environment, we see it relatively stable. We don't see major challenges. However, it is worth noting that view on being quite active in reducing prices in some regions recently. However, we don't see it is a major change in overall competitive landscape and overall pricing policies. However, I would like to note these developments in the market recently.

And taking those developments, we remain relatively positive toward overall competitive situation going forward. In our guidance, speaking about our guidance accommodates for our understanding of competitive environment as well as some macroeconomic in other potential volatility. So, and here we use our traditional approach to revise guidance only in the period when we have enough visibility toward the end.

Inessa Galaktionova -- First Vice President for Telecommunications

Regarding retail. So we're not changing our approach toward digital optimization. So we're looking and watching carefully the situation on the market. We definitely by the end of the year not planning to reduce additional shops. So for the year, we closed 600 shops which we reported during the Q2 results and until the end of the year we don't have any further plans to reduce it further. At the same time, we will definitely see how the situation is going to develop. In case we see some elements and opportunity to reduce next year, we'll definitely do that, because we're pretty healthy and pretty happy with our sublease development. So if there will be a volatility [Phonetic] and necessity on the market, we'll do some optimization, but then we'll just inform the next year.

Ondrej Cabejsek -- UBS -- Analyst

Thank you for that. Can I have just one short follow-up, is there an explicit answer that you can give us in terms of your specific approach as we get to very close to 1Q or is it your plan currently to again go through repricing as we saw in the past couple of years?

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

Well, if I understood the question is, what our plans for repricing? I think taking recent pricing developments in overall approach, it's too early to give any guidance now, repricing approach and strategy over the next year.

Ondrej Cabejsek -- UBS -- Analyst

All right. Thank you very much.

Operator

The next question is from Ivan Kim of Xtellus Capital. Your line is now open.

Ivan Kim -- Xtellus Capital -- Analyst

Yeah. Can I please dwell on the same subjects more or less first on the retail optimization. So who in particular are you watching now? Because it looks like that the rest of the market is ready to optimize, seasonally optimize quite a bit. And is it not vice versa that the market is watching you? What you do going forward? That's the first question.

And then the second question on pricing, but from the different standpoint -- from the regulatory standpoint. Federal Antimonopoly Service was a bit more active recently asking Tel [Phonetic] to retract what they did in May with the price increase. So do you think they could increase and would be a factor again or any future action that you may take? Thank you.

Inessa Galaktionova -- First Vice President for Telecommunications

I will take the first question regarding the retail optimization. To be honest, we're not watching on the steps what our competitors are doing because we're leader on the market and we're just watching how the traffic develops, because we do see that in -- during the summer time it recovers after Q2, but now we see that, there is some, how to say, there is some changes in the traffic, so it's slowing down and definitely we have some plans on the sales. So we'll see actually, that depends on the market situation, not on the movements of our colleagues. Yeah. That relates on the retail optimization.

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

And as far as with Antimonopoly, authorities is the risk for pricing, price upgrades. It is a factor, and that would be nice to say that they have no influence over the overall pricing environment situation. So we are watching, but I would say, that overall competitive environment is a bigger factor than regulation and at least in pricing policy. So we have not seen for us being the major limitation toward reasonable pricing in the market, but rather the overall competitive situation and competition we have four aggressive players in the market. So this being the major factor for overall pricing policy.

Ivan Kim -- Xtellus Capital -- Analyst

Sure, great. Thank you very much.

Operator

The next question is from Alexander Vengranovich of Renaissance Capital. Your line is now open.

Alexander Vengranovich -- Renaissance Capital -- Analyst

Yes, good afternoon. Two questions from my side on the consistent development. First one, can you explain -- it's not technical, can you explain the accounting of MTS premium subscription revenue? The split is between the different segments. And so just wanted to understand how much goes into mobile and how much into the other segments?

And second question is, what sort of a target penetration of the different ecosystem and kind of the segments you have in mind within your five-year strategy, for example, we're talking about MyMTS app, Cashback, banking solutions whatever. So whatever you can share. Thank you.

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

Okay. For the first question, we do not disclose the allocation of premium revenues into different services. But I can tell you that methodology of doing that is actually reflects actual usage of those advantages there being given to subscribers. So it's kind of natural and it doesn't redistribute the natural flow of revenues.

On the second question, we can say that we were anticipating having 10 million subscribers in Fintech, and 10 million subscribers of our Pay-TV. These were our main targets for the nearest strategic period as well as at least 40% of our subscribers are becoming our ecosystem subscribers.

Alexander Vengranovich -- Renaissance Capital -- Analyst

Okay. Thank you.

Operator

The next question is from Henrik Herbst of Morgan Stanley. Your line is now open.

Henrik Herbst -- Morgan Stanley -- Analyst

Yeah, hello. Thanks very much. I've got a few questions actually. Firstly, I just want to ask about your mobile service revenue trends, which do indeed look very strong. I mean I guess you've got about a 3 percentage points, I think, headwind from roaming which means that you've got underlying service revenue growth of 6% on a subscriber base that is flat to slightly down year-over-year. So just wondering what's driving that? Are you seeing any benefits from sort of COVID in terms of more data usage etc. or should we think about that as sort of a pretty much sustainable online rates and as we go into Q4 and I guess 2021 depending on roaming, you could see sort of 46% service revenue growth?

Then, I also wanted to follow up on the non-performing loans, which I mean it sounds like you're pretty confident in the business and that sort of temporary. Can you maybe give some more insight into what's -- I guess relatively obvious, but what's driving the increase in non-performing loans and how you can feel so confident that that trend is sort of going to reverse?

And then the last point, I guess is in terms of your asset -- portfolio of assets. Guess there's been recent speculation in the press that you were looking at adding onto Bank business. I know you probably can't talk about individual potential deals, but more generally, how do you think about your asset portfolio and where do you -- do you see any gaps and/or I'm assuming you can sort of can slim line your portfolio, so any thoughts on that? Thank you very much.

Inessa Galaktionova -- First Vice President for Telecommunications

Henrik, thank you for -- first of all for your question. Actually by asking your first question, you almost answered. So first of all, we managed to close the gap of roaming by -- first of all, by very strong sublease, who is definitely penetrating and using more data. So the ARPU is growing. Also during that time, our customers are really focused on the client service because it's very important to have during those time very good quality of the service, mobile and fixed. So this is actually the main element. And also, as you remember, we made some price increase beginning of the year that also help slightly in Q3 just by keeping or by this gap driven by international roaming.

Ilya Filatov -- Vice President for Financial Services

[Foreign Speech] We do not see any significant risk related to write an NPL, as we have even further may be even more strict our policy for building the provisions. And as we have already mentioned our coverage ratio currently stands at 124%.

Henrik Herbst -- Morgan Stanley -- Analyst

Thanks.

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

The [Phonetic] as it relates to specifically Bank, how we see the difference of our bank portfolio with TCS group, if I'm guessing this right, right?

Henrik Herbst -- Morgan Stanley -- Analyst

Yeah sort of but I guess also more generally? Thank you.

Vyacheslav Nikolaev -- First Vice President for Customer Experience, Marketing, and Ecosystem Development

Well in terms of financial services, I think we see that the focus in the active side is mostly in credit cards, while we have, I think, we were strong in point of sales general credits. In terms of portfolio different. And overall CC in our view as the financial service group and they are not -- we are not viewing them being in Ecosystem because they are predominantly focused on one industry, which is financial sector. While we view ourselves being in at least three industries actively. And in this sense, we have a more diverse portfolio in our product mix.

Henrik Herbst -- Morgan Stanley -- Analyst

Thanks so much.

Operator

The next question is from Zuna [Phonetic] of HSBC. Your line is now open.

Zuna -- HSBC -- Analyst

Hi. I would want to check on what are the Company's plans in terms of the capex for next year, especially with the 5G coming and what is your perspective on that? And secondly, what are your thoughts around next key growth areas that you see outside of the data and voice? Thank you.

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

So actually the answer to the first question in terms of the capex plans for next year, I think it's too early to share, but of course you know the factors that can be behind that. And of course in terms of 5G actually -- nothing actually to share so far. So not in the plans.

And as we talk about key growth areas, I think we -- you can pretty much see that from our strategy because our strategy when we talk about digital upsides refers to potential to the areas, where we see potential for growth and development growth of ARPU and loyalty for our customer lease. So we are focusing on three segments or three markets which are beyond connectivity and beyond traditional telecom. These are financial services and we see the financial services are going through a major transformation and the reason upside there in the particularly in some consumer finance and daily use as your financial services for B2C segment.

Then another segment is Media, where we see also a major transformation in the way how the content being consumed this moving on. So here we also see the opportunities in the cloud services and then particular cloud businesses, including Internet of Things solutions platforms inclusive some B2G segment is being the fourth area where we expect to see growth. So these are all in our strategy and we focus on that. We still believe that telecom in Russia is a growth sector and we see potential for growth in this sector as well.

Zuna -- HSBC -- Analyst

Thank you.

Operator

The next question is a follow-up from Ondrej Cabejsek of UBS. Your line is now open again.

Ondrej Cabejsek -- UBS -- Analyst

Thank you. I wanted to follow up on your fixed business, so going back to the second quarter, you certainly showed a big acceleration in terms of the fixed broadband product, especially. So your comment back then was that this level of sort of mid-single digit growth you saw then as sustainable for the foreseeable future, but in the third quarter, the growth that was back to sort of 1% to 2%. So I was wondering is this because you are perhaps more aggressive in fixed mobile consolidation, let's say, FMC the bundling, the products together may be booking the discounts for that in the fixed service or why has suddenly the revenue growth rate dropped to below what you said you would be expecting?

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

Okay. In the second quarter, we had also -- well, firstly, let me refer to our expectations on the growth in fixed line. We believe that there is a good potential of growth in fixed line. And we keep upgrading and developing our network and fixed business. Of course, we do think that we can see mid-single digit growth rates in this segment. And without telephony effect falling down, we would have seen more than 5% growth in this sector in the third quarter.

As for difference between second quarter and third quarter, there was one-off factor in the second quarter related to B2G contracts with social object being connect -- social, how to say, social significant facilities being a factor in the second quarter. So that effect is high in second quarter, but we will continue to see next year also the effect from this services and we'll see -- we expect to see fixed line business being contributor to overall growth as well.

Inessa Galaktionova -- First Vice President for Telecommunications

Just maybe some addition to Alexey on regarding this B2G allocation. So it's not like one-off effect. This is one even allocation because the government contracts, they are not equally split for the year. So the part of the contract was just allocated in Q2, but that means that it's just pretty through the year and not on equal parts, that's the reason of this high growth in Q2.

Ondrej Cabejsek -- UBS -- Analyst

Thank you, Alexey. I misunderstood I think or I didn't catch the part where you were saying that the growth could have been or would have been mid-single digit, if it were not for something can you please repeat that?

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

Yeah, what I was referring, that we have a significant part of decline in fixed-line telephony, if we excluded for this factor, fixed line -- the other part of fixed line business showed more than 5% growth.

Ondrej Cabejsek -- UBS -- Analyst

Understood. Thank you. And one more short follow-up please, if I may, on the -- any sort of visibility or plans on any potential future buybacks. I think you went into 2020 not expecting one but then you launched a smaller one because of where the share price dropped. Can you share any views on how you would be approaching any potential future buybacks and then sort of short-term at this stage?

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

For this year, the plan was RUB15 billion and we'll complete buyback for this amount for going forward -- as for moving forward, we don't have any plans yet to share.

Ondrej Cabejsek -- UBS -- Analyst

All right, thank you. I'm sorry, does that mean that you don't expect any or that you will be deciding between -- or allocating between dividends and buybacks in the future or that there are no plans? How do I read that answer, please?

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

No, we have not decided yet. And as we always say there is dividend policy which we follow mainly upgrade toward these dividend policy, the discretional step depending on overall financial performance and results of the Company.

Ondrej Cabejsek -- UBS -- Analyst

Understood. Thank you very much.

Operator

The next question is from Dilya Ibragimova of Citibank. Your line is now open.

Dilya Ibragimova -- Citibank -- Analyst

Hi, thank you very much. Congratulations on the strong results. I had three questions if I may. First is on MTS premium. Just wanted to ask if you could share the split of the cost of the users in to paying versus the eligible ones and rest if you could comment whether there is any specific feature that customers find appealing which makes them take up the product?

Second question is on competition. Again, apologies for that to dwell on the subject. But if you could comment on maybe where exactly the line is being aggressive, the line has also been mentioned by [Indecipherable] management last week, but they are being more aggressive in selected regions and while D-Line [Phonetic] mentioned that, they just launched some use targeted tariffs which have no expiry, do you feel like it's -- they're aggressive in specific segments I think D-Line also mentioned they plan to have more segmentation products coming out. Just color, what is it only competition specific segments? And is it -- are we still -- our tariffs, just to confirm that it's nothing to do with unlimited, so we're not going back to unlimited competition? Any color would be appreciated.

And third question on retail online versus offline. Online sales have been based on the offshore retail have been growing quite strongly. Do you see the COVID -- do you see rationale for driving online part of it and does eSIM or this remote identification which is now seems to be easier from this year as opposed to what it has been the requirements in the past, is it cost that you would be exploring and going forward and do you plan to maybe specifically drive online share in your overall retail sales? Thanks.

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

Okay, I'll answer the first question on MTS premium again, your question was engaged versus total users? Total users as we have what 4 million. And the second month of our launch, we've seen 20% of users actively using some of the benefits, one or more benefits that were provided by MTS premium.

Dilya Ibragimova -- Citibank -- Analyst

Sorry, just a follow-up on that, are 20% also paying users?

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

Both. Overall, we did not divide that. Of course I think that out of paying users could be -- the percentage would be naturally more, but I don't have a specific number for you.

Dilya Ibragimova -- Citibank -- Analyst

Okay. Thank you.

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

As for the competition. The price adjustment, well, let me start from the general comments. The general comments is that we see the overall competitive environment as being quite stable and I would say even benign looking forward. Still, however, we see that in about 40 regions, D-Line made price adjustments, they were not in specific segments. They were across the board. But once again, we don't see that as being a game changer in the market.

Inessa Galaktionova -- First Vice President for Telecommunications

So regarding online, offline. As we mentioned, definitely the pandemic simulated the usage of online. And during Q2, we saw a huge increase of our online sales. So in the peak, it was around 40% of our general sales coming through online, I mean for retail. Now it's more stable the percentage. So it's around 30% and it's staying on the same level in spite that almost all the shops are opened. And but there is still a huge demand buying goods from online. In overall, we're almost doubling year-on-year, our sales for online both SIM cards even 3 times growth and as sales of headphones and accessories were almost doubling.

We have the same outlook for next year. So we are pretty sure that online is going to play one of the key role both for SIM cards and for goods sales next year and we're doing everything just to have a very good client -- customer join through online channels.

Regarding eSIM. As you know, eSIM right now the launch of eSIM was in pilot mode. So we're testing that, how it's working and what is the demand. And again, it will depend on regulations, how quickly it will be launch officially in Russia, but we are fully prepared and as soon as the regulatory is done. So we are ready just to propose to every user who wants that.

Dilya Ibragimova -- Citibank -- Analyst

Thank you very much.

Operator

The next question is from Anna Kurbatova of Alfa Bank. Your line is now open.

Anna Kurbatova -- Alfa Bank -- Analyst

Good afternoon. Thank you very much for taking my question. I have two major questions. First of all regarding...

Polina Ugryumova -- Director of Investor Relations

Anna, sorry, this is Polina, your line does not work very well. Can you please try again?

Anna Kurbatova -- Alfa Bank -- Analyst

Can you hear me?

Polina Ugryumova -- Director of Investor Relations

You're too close to the microphone.

Anna Kurbatova -- Alfa Bank -- Analyst

I'm sorry. Can you hear me now?

Polina Ugryumova -- Director of Investor Relations

Much better.

Anna Kurbatova -- Alfa Bank -- Analyst

Apologize, yes, this is a handset. Well, thank you very much. My first question is regarding your guidance, whether it -- your new top line and OIBDA growth projections take into account the disposal of Envision? And the second one, if it is possible for you to give comment on the situation in Belarus with your unconsolidated subsidiary there, because well the quarter -- the year-over-year numbers in 3Q look like well enough with the growth in the revenue of mid-teens, while I personally was expecting some maybe pressure on mobile operations there in relation with late politically challenging situation? So any comment on this current situation and the Belarusian market would be very grateful. Thank you.

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

Thank you. For guidance, this does include the consolidation of [Indecipherable]. But in accordance with US GAAP we'll do anyway from comparative basis. So we'll have year-over-year report of our full year results on a compatible basis. Like we've done it with the disposal of our Ukrainian business.

As for Belorussia, we don't see the major -- the major impact on our business dynamics, they're in the market from, whatsoever, they're in the market. In third quarter, we had 16% growth in local currency as you could see from our reporting and more than 10% growth in our OIBDA once again local currency. We expect to end up with strong year in Belorussia and once again we don't see the major disruption to our business there.

Anna Kurbatova -- Alfa Bank -- Analyst

Thank you very much. It's helpful.

Operator

The next question is a follow-up from Ivan Kim of Xtellus Capital. Your line is now open.

Ivan Kim -- Xtellus Capital -- Analyst

Yeah. Quick question on your quality treasury stock. So any -- are we nearing any sort of action with regards to cancelling that or partially cancelling that? Thank you.

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

Yeah, the answer the same, actually as we always say that strategically we believe that it does make sense actually to cancel it. But now we're actually we're more concerned about our possibility to pay and deliver dividend payments according to our dividend policy. So in the short term, we do not see it as an opportunity.

Ivan Kim -- Xtellus Capital -- Analyst

Okay. Thank you.

Operator

[Operator Instructions] The next question is from your Evgeny Annenkov of Bank of America. Your line is now open.

Evgeny Annenkov -- Bank of America -- Analyst

Thank you for the presentation. I have two questions please. Firstly on your opex optimization. It seems that in Q3 you continued some cost optimization even on top of store closures and it positively contributed more than RUB1 billion to your OIBDA. Can you please give details on fixed cost, was that temporarily related to COVID or some of them are requiring grants [Phonetic] like potentially salary optimization, more preferential lease rate?

And secondly on as a bank. So MTS Bank reported a nice improvement in margins year-on-year and despite cost of risk was actually up year-on-year. So do you think assuming no extra provisions so RUB1 billion plus net income level per quarter is sustainable? And overall, when do you think you can reach your 20% ROE target? Thank you.

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

Yes, I will take the first question in terms of the opex optimization. Of course, the major part is coming from retail. It's coming from the rent cost and it's coming from the payroll. But of course, this is not only retail because, we have some other sectors which also were affected negatively by the pandemic. Therefore, actual is a response to that we have to reconsider some of our cost. And of course the most of it are the payroll and in most of the cases, this is the rent. So that's the major lines that were reconsidered during this time.

Operator

As there are no further questions, I hand back to the speakers for conclusion.

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

What's the second question? Let's answer the second one.

Ilya Filatov -- Vice President for Financial Services

[Foreign Speech] We do confirm that we estimate the third quarter was much better in terms of the operational efficiency as compared to the second quarter when we speak about our banking segment. But as we have already mentioned during our Q2 disclosure, we do expect that for the full year, the bank will report positive result in terms of the net income, however, we cannot kind of define the accurate estimate of this net income at this stage.

Evgeny Annenkov -- Bank of America -- Analyst

I think sorry, just to confirm, you think this preferential lower lease rates might sustain in one or two quarters?

Polina Ugryumova -- Director of Investor Relations

Evgeny, can you please repeat your question?

Evgeny Annenkov -- Bank of America -- Analyst

My question is on leasing costs for your stores, you said you managed to get some more beneficial rates in Q3. You think it might be sustainable in Q4 and potentially next year?

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

You referred to optimization in rental rates?

Evgeny Annenkov -- Bank of America -- Analyst

Yes.

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

Well rental rates, we saw some kind of recovery and I think we achieved certain optimization, which we will carry on. However, the materiality of this optimization is not that high as we saw it back in third -- in second quarter and the partially in third quarter. However, we do expect to see some carry-on on optimization overall in our retail for the next year.

Evgeny Annenkov -- Bank of America -- Analyst

Thank you. That helps.

Operator

So now there are no further questions.

Polina Ugryumova -- Director of Investor Relations

Ladies and gentlemen, thank you very much for listening. As usual, we will make a replay of this call available on our IR web page in the near future. If you have any further questions please do not hesitate to reach out to MTS Investor Relations at any time. Our in-boxes and phone lines are open. In the meantime we appreciate your interest in MTS and wish everyone a happy and healthy holiday season.

Operator

[Operator Closing Remarks]

Duration: 66 minutes

Call participants:

Polina Ugryumova -- Director of Investor Relations

Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board

Vyacheslav Nikolaev -- First Vice President for Customer Experience, Marketing, and Ecosystem Development

Inessa Galaktionova -- First Vice President for Telecommunications

Ilya Filatov -- Vice President for Financial Services

Andrey Kamensky -- Vice President for Finance

Ondrej Cabejsek -- UBS -- Analyst

Ivan Kim -- Xtellus Capital -- Analyst

Alexander Vengranovich -- Renaissance Capital -- Analyst

Henrik Herbst -- Morgan Stanley -- Analyst

Zuna -- HSBC -- Analyst

Dilya Ibragimova -- Citibank -- Analyst

Anna Kurbatova -- Alfa Bank -- Analyst

Evgeny Annenkov -- Bank of America -- Analyst

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